Premier still facing big challenge, argues analyst

A leading City analyst has welcomed the move by Premier Foods to dispose of its under-performing subsidiary Brookes Avana for £30m but warned the embattled company still "has much to do".

The own-label meals and cake business was sold recently by Premier to rival 2 Sisters Food Group for £30m in cash, in a deal that should complete by January.

But according to Martin Deboo, analyst at Investec Securities, the deal made sense. He said: "We see the disposal of Brookes Avana as a positive step on Premier's path to recovery. In exchange for £30m in cash, Premier loses a major distraction and an asset that we were forecasting to lose £25m this year. There remains much to do if our 15p target share price is to be realised, but this feels like good business to us."

Commenting on the disposal of Brookes Avana, newly appointed chief executive of Premier Foods Michael Clarke added: "The sale of Brookes Avana underlines our commitment to focus the business on growing a smaller number of brands. Brookes Avana will have a better opportunity to grow with 2 Sisters Food Group given its focus in the chilled food sector."

Premier Foods has experienced a torrid year in 2011, and proceeds of the disposal will be used to repay its extensive bank borrowings, currently running at £1.2bn. Premier announced in October that it would be focusing investment behind eight Power Brands, including Hovis and Mr Kipling, and would dispose of selected businesses "further enabling it to deleverage the business". Shares in Premier, which have plunged from a high of 288p in 2007, have been hovering around 6p.

Brookes Avana has around 2,000 staff and Premier said that "all the employees will transfer with the business".